As a business owner, you’ve got probably been dealing with all the effects of inflation these days – commodity prices have skyrocketed, shipping costs are much higher than usual, your commute to work is now costing you much more due to astronomical gas prices, and the list goes on. You were probably hoping for a respite, but unfortunately one other major problem could also be on the horizon: a recession.
Periods of massive inflation are often followed by recessions in which consumers spend much less because they have been able to cope with higher prices for too long. A drop in profits can really hurt any business, so how are you going to prepare for this possible scenario? From my experience as a CEO and founder CMA Examination Academy (Certified Management Accountant Exam Review Program), I discovered the following essential ways to prepare your business finances for a recession:
Remember that money is king
When your regular customers determine to in the reduction of on their spending, it means you will probably see significantly fewer monthly sales than usual. However, your business will still need to have the ability to cover all of its monthly overhead expenses similar to payroll, utilities, software subscription fees, office rent (if you have one), etc. Therefore, it is absolutely essential to ensure your business has ample money flow and reserves money that may allow it to survive during the recession. Funds will need to be available to keep your business running easily in the event of a decline in sales.
This means there is not any higher time than now to start putting a much larger share of your profits into your money reserves. If you are considering long-term capital investments, it should be in your best interest to evaluate the level of money outlay you will want to commit and its impact on your day-to-day money flow requirements.
Lower your overhead costs NOW
As stated above, positive money flow and strong money reserves will likely be crucial to keeping your business running well during a recession. And if money inflows decline during a recession, the most significant thing will likely be to focus on reducing money outflows – this can leave much additional cash in your company’s coffers in case of an emergency. One way to achieve this is to reduce operating costs as much as possible now, reasonably than later.
This will look different for every business, but start by examining what is absolutely mandatory to keep your business running easily. This may include a CRM platform, website positioning tools, accounting software, and assistance from all employees and/or contractors. Then determine which expenses you may cut or get rid of. Can you ship products with cheaper materials? Can you eliminate a cloud file drive you not need? Can you turn to cheaper raw materials without affecting the quality of your products?
Starting a job in slow times: How to prepare for a recession
Automate processes with software
A surefire way to reduce operating costs is to implement software that automates processes, thereby lowering expenses in the long term. For example, as an alternative of paying for an expensive call center that answers customer support calls, you may implement an automated phone answering system that may answer every incoming call, answer basic questions, and route calls to the appropriate staff. Or as an alternative of paying an assistant to send you invoices, you may automate the invoicing process with software like this Stock up.
There are SO many software solutions that may be used to automate processes, so start with a basic Google search for the process name + “automation”. You’ll likely see a lot of ads for different apps, so check which one is the least expensive but has great reviews and may meet your business needs. You can talk to representatives to see if they provide any potential discounts. It also doesn’t hurt to check if there are any promotional codes available online that you may use to purchase the software.
Optimize each department as much as possible
A recession really is the time to optimize operations, accounting, customer support and all other departments. Find ways to streamline processes and reduce costs overall, but make sure they do not impact business growth, customer support or worker morale. This may mean changing all projects so that each worker is responsible for tasks at which they would actually excel. You may implement latest weekly video meetings to keep everyone updated on project deadlines and allow team members to ask each other questions and get immediate feedback. This would help eliminate wasted time sending emails back and forth.
Last resort: Re-examine bonuses and salaries
If you anticipate that your company will struggle during a recession, chances are you’ll need to revisit the situation and temporarily freeze all bonuses and salary increases. However, it should be crucial that the situation is fully transparent to all affected employees so that they understand the need for the freeze. This might help prevent frustration, low worker morale, and costly turnover. Explain that freezing bonuses and raises will only occur until the economy recovers from the recession and the company can afford them again. Also see what other advantages you may offer employees in the meantime, e.g. half-day work on Fridays.
To end all of it
A recession could also be just around the corner, but with a little planning you may ensure your business stays profitable. Prepare your company’s finances by ensuring you have positive money flow and ample money reserves available in case of an emergency. Lower your overhead costs now, automate your processes with software and optimize every department as much as possible. Finally, as a last resort, you must revisit the situation and temporarily freeze all bonuses and salary increases until the recession ends. Taking these preventive steps should help keep your company’s finances and profits healthy during a possible recession.